Government’s departure tax for expats is ‘deeply flawed’

The Labour government’s potential departure tax for expats will boost foreign direct investment out of the UK, according to Vanesha Kistoo, head of French at Blick Rothenberg.

Chancellor of the Exchequer Rachel Reeves has been urged to introduce a CGT departure tax for people leaving the UK in the upcoming October Budget.

The idea came from the Resolution Foundation think tank, which said CGT was “ready for reform”.

He added: “This is because the rates are unfairly lower compared to rates for other forms of income. For example, employment income is subject to a top tax rate of 53 per cent on earnings, but some capital gains are subject to a top tax rate of just 20 per cent.”

The foundation also suggested aligning CGT rates on shares with dividend tax rates, taxing capital gains from property like salaries, and applying the tax on death.

However, Kistoo believed the proposed exit tax was “deeply flawed” and made “no fiscal sense”.

“This will likely encourage wealthy expats to move to other countries, with France being one possibility,” she added.

Kistoo believed that wealthy expats would most likely try to leave the UK before they had to pay exit tax, or would not come to the UK at all, meaning that exit tax revenues would decline over time.

“Because wealthy expats make up just 1% of the UK population, the overall revenue from exit tax is likely to be small, meaning it will not make a significant contribution to plugging the black hole in the UK’s finances,” Labour said.

“When expats move abroad, they will go to countries with more favourable tax rules, especially in light of the new UK foreign income and gains rules, which only allow tax relief for four years.

“In comparison, the French tax system for expats is much more attractive because it can be used by workers who have not been tax residents of France, including French nationals, for five years.

“The program also provides for exemption from income tax on earned income and wealth tax for assets located outside France,” she explained.

Vistoo stressed that there is a departure tax in France, but it only applies to people who left the country after six of the last ten years of residence in France.

She said she hoped the UK government would implement a similar timetable if it decided to introduce the proposed tax.

Vistoo said: “If the UK government wants long-term growth, not just short-term tax revenues, it needs to start announcing measures to continue to attract foreign direct investment to the UK. And that means attracting wealthy expats, not giving them more and more reasons to go elsewhere.”

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